Background
Mohit Sharma was the sole director and secretary of Onward Energy Pty Ltd. In June 2024 an Australian Tax Office audit concluded that Onward Energy owed $1,100,255.59 in tax, and the company was placed into voluntary liquidation the same month. The liquidator subsequently commenced proceedings against Sharma in the Supreme Court of Queensland, filing a Claim and Statement of Claim on 6 February 2025 seeking recovery of the ATO debt on the basis of breach of directors’ duties and insolvent trading under ss 588G, 588M and 1317H of the Corporations Act 2001 (Cth).
Because Sharma could not be served personally, an order for substituted service was obtained on 13 November 2025, permitting service by email to Sharma’s private company and, notably, to his solicitor’s email address. Service in accordance with that order was effected on 16 February 2026 — ten days after the Claim had passed its one-year expiry under r 24(1) of the Uniform Civil Procedure Rules 1999 (Qld). No appearance was filed and default judgment for $1,100,255.59 was entered on 2 April 2026. Sharma applied to set it aside on 19 May 2026.
Sharma argued that he had immediately forwarded the served documents to his solicitor and did not appreciate that a defence was required. He also contended that the Statement of Claim was deficiently pleaded because s 588G did not, in his submission, impose a “duty” on directors. Morrison J rejected both contentions but nonetheless set the judgment aside on a distinct procedural ground.
The Court’s Holding
Morrison J held that the default judgment had been obtained irregularly and must be set aside as of right. Under r 24(1) UCPR a claim remains “in force” for one year from the date of filing; service effected after that period is an irregularity rather than a nullity, but it is an irregularity that infects any default judgment founded upon it. Applying the consistent line of Queensland authority from Gillies v Dibbetts [2001] 1 Qd R 596 through to Zaporozhki v AAI Limited [2022] QSC 22, his Honour held that the order for substituted service could not be construed as authorising service of a stale claim — it authorised service of the documents only while the claim was in force. Because the claim was stale when served, the service was irregular, and the default judgment that followed was therefore also irregularly obtained. Following Cusack v de Angelis [2008] 1 Qd R 344, a defendant is entitled to have such a judgment set aside as of right.
The court also addressed the substantive defences raised. Morrison J rejected Sharma’s submission that s 588G creates no “duty,” confirming — consistently with the High Court in CGU Insurance Ltd v Blakeley (2016) 259 CLR 339 and a uniform body of lower-court authority — that s 588G imposes a positive duty on directors to prevent insolvent trading. The Statement of Claim was found to be adequately pleaded in all material respects. Sharma’s explanation that he did not appreciate the significance of the served documents was characterised as implausible given the documents were personally addressed to him, identified the Supreme Court proceeding by name, included the Order for Substituted Service, and arose against a background of which Sharma was fully aware. However, because the judgment was irregular rather than regularly obtained, it was unnecessary for Sharma to establish a prima facie defence or a satisfactory explanation for his failure to appear.
The court exercised its power under r 24(2) and (3) to renew the Claim retrospectively to 6 February 2026 and prospectively to 6 February 2027, thereby regularising the position. The respondents were ordered to pay Sharma’s costs of the application.
Key Takeaways
- A claim filed in Queensland expires after one year under r 24(1) UCPR; service effected after that date is a procedural irregularity, not a nullity, but any default judgment built on that service is irregularly obtained and will be set aside as of right.
- An order for substituted service does not authorise service of a stale claim — it must be construed as permitting service only while the claim remains in force; practitioners must ensure renewal before serving where the one-year period has or may have elapsed.
- Section 588G of the Corporations Act 2001 (Cth) imposes a positive duty on directors to prevent insolvent trading; the section heading, ASIC’s regulatory guidance, the Explanatory Memorandum, and a uniform body of appellate and superior court authority all confirm this characterisation.
- On a set-aside application following an irregularly obtained default judgment, a defendant need not establish a prima facie defence on the merits or explain the failure to appear — the entitlement to set aside arises as of right, subject only to futility and amendment.
Why It Matters
This decision is a practical reminder for insolvency practitioners and litigation solicitors that claim expiry dates must be closely monitored, particularly where substituted service orders are obtained late in the claim’s life. The gap between obtaining a substituted service order and actually effecting service — here over three months — can silently push service past the one-year mark and render the entire default judgment process void of effect. The ruling confirms that no amount of procedural effort to achieve service will cure the irregularity once the claim has lapsed, and the appropriate remedy is to seek renewal under r 24(2) before serving rather than after judgment has been entered.
For directors facing liquidator claims, the case illustrates that procedural compliance by the opposing side matters: an irregularly obtained judgment may be set aside even where the director’s own conduct and explanation are found to be unconvincing. Equally, the court’s firm rejection of the argument that s 588G imposes no “duty” reaffirms the orthodox position and signals that creative pleading attacks on the statutory foundation of insolvent-trading claims are unlikely to succeed.